Who Can I Trust in The Financial Services Industry?

For over ten years, my goal has been continual understanding of financial risks and developing practical strategies for managing the risk created by job loss, illness or disability, bear markets and financing thirty years of retirement. Since 1997, I saw the work of managing these risks are becoming increasingly complex.

A good understanding of reason and financial risk management is more difficult is the world generally is evolving at an incredible pace. President Fellow, Vince Poscente, called the faster growing now. The other reason is more sinister work is harder than it seems so difficult to know who to trust. Over the last ten years in the financial services industry, particularly as many have proved to be so unreliable.

I do not mean only that Enron and Bernie Madoff the world. I mean the countless brokerages, insurance companies, the complex of mutual funds, brokers and investment managers who continue to sell products – such as mutual funds or annuities — and is – like market timing or stock selection – when all the evidence makes clear that these products are only good for people to sell them. So let me give you some guidelines to help resolve the snakes well.

Transparency

The first criterion is transparency. Transparency means that everything is in front and open. It’s the equivalent of financial services in a restaurant kitchen. Ask yourself these questions:

– You know exactly how the adviser is paid, how and by whom?

– Can you see the conflict of interest might be for you to judge whether they are colored with the opinion that it receives?

Transparency requires the willingness to eliminate the vast majority of advisors working for banks, insurance companies, brokerage houses and virtually everyone responsible for selling financial products. Why is transparency important? It is very simple. Be paid if the account of anyone, the interest will likely occur before yours.

Accuracy

The second thing on your checklist is what they promise the impossible? Ask yourself these questions:

– Is the promise of unrealistic returns?

– Did they say they can predict what direction the market will go, or choose actions that will be better than average?

– Will what is an investment without risk, or change the subject when you ask about the risk?

All this should ring alarm bells in your head. The first is most common among non-regulated entities promoting strategies to active trading. The second will exclude many advisers – including a consultant who favors an investment fund managed actively. The third seems to be more common in the equity markets and the establishment of life, but also occurs elsewhere. In February 2008, the auction rate market securities failed. Worth 200 billion dollars RHSO which had been sold as a cash equivalent, became liquidity.

Remember, there is no such thing as a safe investment. The risks you take several forms. Just because something is not market risk or credit does not mean they have other forms of risk.

Experience

The third criterion is the experience. And we must be cautious. We often experience deduct things that make no sense. Being a celebrity does not an expert. Having a newspaper column, television, radio or writing a book does not make you an expert. After hundreds of millions or even billions of dollars of assets under management does not make you an expert. Ask yourself these questions:

– Is the advisor to recommend the same thing a hundred other advisers would or could?

– Is there an original thought on how to solve your financial problems specific?

– Can backup advisor’s recommendations with empirical evidence, the impartial investigators, support your recommendations?

My favorite definition of the experience comes from Mark Sanborn. Expertise is the ability to synthesize existing ideas and think creatively – to add new knowledge and new ideas in their field of expertise. If your consultant spends most of his time reading on selling skills or management practice rather than the latest academic research, which should be a red flag.

Behavioral Economics

And finally, knowing as we do, that investors are not acting in a completely rational economic theory suggests, and knowing that when it comes to investing, emotions are our worst enemy, if your adviser not a kind of emphasis on the behavioral component of investment, I’d be worried. Ask yourself these questions:

– Does the advisor address the component of investment behavior in their presentation or material?

– What safeguards or mechanisms exist to avoid sabotaging me my wallet in a fit of fear or greed?

– What safeguards or mechanisms exist to keep sabotaging my portfolio advisor in an attack of fear or greed?

The quantitative analysis of investor behavior, conducted annually by Dalba tells us that during the period of twenty years, until 2005, the stock market averages about 12%. During this same period, the average of the average stock mutual fund investment of about 9%. The average mutual fund investors? Only 4%!

The difference between 4% and 9% is the result of buying and selling at the wrong time and what the exact cause of which is fear and greed. It is the ripe fruit! If an advisor does not focus on aspects of investment behavior, are quite limited in what they can do for you. These are my four, but could be more true. I’m curious what you think – about them and this would add to the list.